The Cost of Devaluing Women

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CreditKatherine Lam

By Sallie Krawcheck

Dec. 2, 2017

My first job out of college in the late 1980s was at Salomon Brothers, a trading house of cigar-smoking, expletive-spewing strivers. One day, I leaned over a colleague’s desk to work on a spreadsheet, and heard loud laughter from behind me; one of the guys was pretending to perform a sex act on me. Almost every day, I found a Xerox copy of male genitalia on my desk.

I was not alone in being treated this way: During that era another brokerage house, Smith Barney, paid out $150 million in a bias and harassment case — known as the “boom-boom room” suit, named after a basement party room in one of its branches. Wall Street was a hypermasculine culture, where the all-nighter was a badge of honor and the ever-bigger deal was proof of one’s status, and women were not safe, either emotionally or physically.

In the 1990s, I changed firms and was now a midlevel professional. The harassment shifted: Instead I had to rebuff a client, a chief executive, who asked me to join him — “Just you, no need to bring the rest of the team” — in his hotel room at 11 p.m. to go over some numbers. One company rescinded a job offer upon learning I had a baby at home.

I changed firms again and moved another rung up the corporate ladder, and it felt a little less fraught to deal with the inevitable. I was able to say no to the senior government official who said, “How about we go up to my hotel room?” before obscenely wagging his tongue at me in front of my colleagues. I could knock the portfolio manager’s hands off my leg without too much fear of retribution.

These are stories I have not often revisited. Maybe I’ve shared them over drinks with female friends or with younger women in the industry, to let them know what it used to be like. But in the dizzying past few weeks, as this crucial moment of reckoning on sexual harassment continues, it’s clear that the harassment I was subjected to is not in the past. Worse, I know that being a white woman afforded me a privilege in dealing with these issues that unfortunately not everyone has.

What we are only beginning to recognize is that demeaning and devaluing women is an insidious, expensive problem. It’s not just the eye-popping settlements in some cases, like the $32 million paid by Bill O’Reilly to settle a harassment claim. Nor is it just the high salaries network stars have been making while allegedly assaulting subordinates, like the $20 million, or more, for Matt Lauer. It only starts there.

The bigger cost derives from how women’s ideas are discounted and their talent ignored. I have seen it up close in the two worlds I know best: Wall Street, where I was chief executive of Smith Barney and of Merrill Lynch Wealth Management, and in Silicon Valley, where I’ve raised money to run my start-up, Ellevest. These places are perhaps the purest microcosms of capitalism, and their lessons are instructive for all of us.

Both Wall Street and venture capital are industries whose product is money: Wall Street directs trillions of dollars to the sectors or businesses that it believes will deliver the highest returns. Likewise, Silicon Valley invests hundreds of billions of dollars in start-ups that it believes will deliver the best returns. Both pick economic winners and losers.

Wall Street has for years prided itself on being a “meritocracy,” arguing that its performance-based culture drives capital to the best trading ideas and the best deals. Despite research showing that companies with more diversity, and particularly more women in leadership, offer higher returns on capital, lower risk and greater innovation than firms without such leadership, Wall Street has been, and is, predominantly male at the top. Its trading floors are 90 percent men. This ignores studies indicating that members of homogeneous groups tend to trust one another too much, leading to potential market mispricings.

Homogeneity has led Wall Street firms to travel in packs, going after the same opportunities at the same time: junk bonds in the 1980s, tech stocks in the late 1990s and subprime lending in the run-up to the crash 10 years ago. In particular, when the subprime bet proved wrong, the big banks went essentially bankrupt and were bailed out by the United States government because officials worried that the economic cost of their failure would have been catastrophic.

Thus one can draw a line from the gender discrimination on Wall Street through to the lack of women — and lack of diversity of thought — in the industry to increased risk and to the financial crisis.

Silicon Valley today is rife with parallels to Wall Street, its lessons unlearned. Like Wall Street, it prides itself on its meritocratic culture, arguing that its performance-based orientation will drive capital to the best start-ups. There are few senior women at the top venture capital firms. The industry funds few start-ups run by women. Last year, of the approximately $60 billion that venture capital firms invested, just $1.5 billion went to businesses with female founders.

One might argue that start-ups run by men just happen to deliver the highest possible returns. The mythology around the industry bolsters this, with venture capitalists boasting of investing in Facebook practically out of the dorm room.

But that argument doesn’t hold up. Investors in venture capital funds would have been as well off simply investing in the stock market over the past five to 15 years. That’s what I see in reviewing the data from the research firm Cambridge Associates: Investors in the high-risk, high-reward world of start-ups essentially did no better than they could have opening an account at their neighborhood brokerage. What might help those venture capitalists? First Round Capital reports that its investments in companies with a female founder have posted 63 percent better returns than men-only firms.

Venture capital and Wall Street are both funded by “other people’s money.” Pension funds, endowments, mutual funds and individual investors provide the fuel that enables this sexist, exclusionary behavior. The irony is that so many of these endowments and foundations exist to make the world a fairer place, not to exclude vast segments of the population. Yet because their money is tied up in industries where women’s perspectives, and diversity of viewpoints, aren’t valued on the whole, their causes — and their bottom lines — lose out.

This moment of ferreting out sexual harassers is a step forward. It also reveals how much work we have to do on the biases that allowed such behavior to flourish.

This summer, I was in Silicon Valley, pitching for a round of funding for my company. I was the only woman in a room of 18 venture capitalists. A few of the men were engaged, a few were typing on their iPhones, and the lead investor was alternating between peppering me with questions and leaning back in his chair with his arms folded. He challenged my knowledge on digital acquisition, on acquisition costs.

Fair enough, even if he was being a little prickly. Finally, I noted that our business was planning to hire a few financial advisers. He proceeded to give me chapter and verse on how financial advisers are hard to manage and instructed me on the economics of the financial advisory business.

I was astonished, because I have managed more financial advisers in my career than probably anyone in the country. And though it’s been years since I have been sexually harassed the way I was at Salomon, I realized in that moment how deep our gender views run, how men are still seen as leaders and women as more junior.

This man naturally assumed that he knew more about it than I did. It was his ingrained view of women — a view that’s costing all of us.

Sallie Krawcheck is the chief executive of Ellevest, a digital investment and planning platform for women, and the author of “Own It: The Power of Women at Work.”